Rio Algom’s corporate strategy emphasizes mining

Of major significance, is the fact that the company’s new corporate strategy will emphasize the mining side of its businesses.

In 1987 Rio Algom realized a record profit of $93.1 million, the highest in its history. The record earnings were boosted largely by its copper mining subsidiary, 69.1%- owned Lornex Mining Corp., which operates an open pit copper-molybdenum-silver mine in the Highland Valley area, B.C.

Following Albino’s departure, the company assembled a small team, under the direction of a new chairman, Ross Turner. The team’s mandate was to define and implement a new corporate strategy for Rio Algom that best met the company’s priorities and maximized its human, material, and financial resource s.

“We undertook an extensive appraisal of our strengths, existing operations, and investment opportunities,” said Ray Ballmer, vice- chairman of Rio Algom.

“In examining our strengths, we saw that we have a number upon which we could build. We have a strong balance sheet with cash of over $200 million, working capital of over $650 million, and a low debt to equity ratio. We also have a majority shareholder, RTZ Corp., with extensive international interests in the mining sector, whose knowledge and experience are available to us,” he said.

The Toronto-based company, which began its life 29 years ago as a uranium producer in northern Ontario, is currently focused on six distinct sectors: uranium mining, steel manufacturing, metals distribution, copper/molybdenum concentrate production, metallurgical coal production, potash and tin mining. The company employs about 8,000 people, 5,400 of whom are based in Canada.

Following its internal assessment, Rio Algom decided its new corporate strategy would emphasize the mining side of its businesses. The new plan also called for a review of the company’s active investment portfolio. During the past year, Rio Algom began the process of implementing its new corporate strategy.

One recent development was the re-acquisition of the East Kemptville tin mine for about $39.3 million from a banking group led by Bank of America. The consortium had earlier loaned Rio about $135 million for the tin mining project, which ran into problems when the price for the metal plummeted from $8(US) to $2.50(US) per lb a few years ago.

Another key aspect of the company’s new strategy has been the establishment of a more focused and aggressive exploration effort in Canada and the United States.

“Although we are interested in all metals, we are paying particular attention to gold and uranium,” Ballmer said. “We are very close to signing a deal with Kerr McGee for uranium reserves in Wyoming and New Mexico. A number of other projects are currently under active analysis,” he added.

Kelly O’Connor, Rio Algom’s manager of exploration in Toronto, said the company has increased its exploration staff to 18 geologists, up from a level of 10 a year ago. A target of 26 geologists in total has been set by the company for its North American exploration group.

“This year has been mainly occupied with staffing,” O’Connor said. “Our ground situation is still being evolved.

“The flow-through exploration boom resulted in a huge increase to the geological database, and although we’re just getting out of the starting gate on some of our projects, you’ll see us focusing on proven mining areas and taking advantage of the increased geological database,” he said.

According to O’Connor, time, money and people are the three main elements of a successful exploration strategy. “We have strong financial backing and we’re building up our exploration staff now for the long term. We’re targeting a minimum exploration budget, excluding special projects, of about $6.5 million for Canada and about $2 million for the United States,” he said.

The company is planning to open a new regional exploration office in Val d’Or, Que., in the new year. Exploration for uranium and other minerals is currently conducted out of its office in Saskatoon, Sask., while the company’s other regional exploration offices are located in Thunder Bay, Ont., Fredericton, N.B., and Reno, Nev.

Rio Algom is currently active in Newfoundland where exploration is continuing on several properties including its Robert’s Arm project in the north half of the Buchans belt. The company is also exploring in the Bathurst camp, New Brunswick. Base metals are the main focus for Rio in Canada’s Atlantic region.

Exploration under the Rio Algom flag will be resumed in British Columbia and the Yukon Territory following the re-organization and wind-up of Lornex.

Rio Algom’s interest in Lornex Mining Corp. was acquired in the mid 1960s. The development of the original open pit mining and milling complex was completed in 1972. After extensive discussions between Lornex and Cominco, the companies agreed to merge their adjacent facilities in the Highland Valley in mid-1986.

This resulted in the creation of Highland Valley Copper, a partnership in which Lornex’s interest is 45%. Highland Valley Copper is the largest open pit mine in Canada.

The recent proposal by Rio Algom and Teck Corp. to restructure and ultimately wind up Lornex will result in Rio Algom and Teck holding a direct interest in the assets and liabilities of Lornex on a 75-25 basis. Rio Algom will retain Lornex’s 50% management interest in Highland Valley Copper.

“Lornex no longer has any active operations and over the last few years has essentially become a holding company with management of its holdings provided by Rio Algom,” said Ray Ballmer.

In its boardroom, the company has strengthened its senior management with the appointment of Ballmer to deputy chairman and Colin Macauly to president and chief operating officer. Both have extensive experience in the international mining scene. The company says other appointments will be made as necessary to further strengthen its management.

The years ahead should be interesting ones for Rio Algom. A vigorous financial position, combined with the support of its London- based parent, give the company a solid foundation for finding its share of Canada’s future metal mines.

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